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Basics of a Circular Economy

Is a system which is regenerative and where resource input and waste, emission and energy leakage are minimized by slowing, closing, and narrowing material and energy loops.

This is achieved by long-lasting design, maintenance, repair, reuse, remanufacturing, refurbishing, and recycling. As opposed to a linear economy which is based on a “take, make, dispose” model of production.

It needs the whole capitalism system to be rebuilt in order to change consumers needs and perspectives when buying a product which is not design using programmed obsolescence.

It includes a change from fossil fuels to the use of renewable energy, and the role of diversity as a characteristic of resilient and productive systems. Involves the rethinking of the role of money and finance and part of its pioneers have called for a renewal of the economic performance measurement tools which are currently used.

The pioneers of the circular economy are David W. Pearce and R. Kerry Turner. In Economics of Natural Resources and the Environment, they pointed out that a traditional open-ended economy was developed with not a sustained tendency to recycle and treating the environment as a waste reservoir.

The circular economy is based on the study of non-linear systems, particularly living systems, on the notion of optimizing systems rather than components and the notion of design-to-fit.

The linear model “take, make, dispose”, the industrial processes and the lifestyles that feed on them, use finite reserves to create products that end up used and disposed within a relatively short period of time.

This facts encouraged a few scientists and philosophers, like Walter R. Stahel. In the late 1970s, he worked on developing a “closed loop” for production processes, and co-founded the Product-Life Institute in Geneva. Furthermore, in the UK, Steve D. Parker researched waste as a resource in the agricultural sector in 1982, developing a closed loop model for production systems mimicking, and integrated with, the symbiotic biological ecosystems they exploited.

Regenerative Resources

We need to ensure that renewable, reusable, non-toxic resources are utilized as materials and energy in an efficient way. Eventually, the system should using our solar energy and generate energy through renewable sources.

Waste as a Resource

The second element aims to utilize waste streams as a source of secondary resources and recover waste for reuse and recycling and is based on the idea that waste does not exist. Both the biological and technical components (nutrients) of a product are designed intentionally in such a way that waste streams are minimized.

Sustainable Design

We need to think about the systems perspective during the design process, about using the right materials, designing for appropriate lifetime and for extended future use. A product which is designed to fit within a materials cycle, can easily be dissembled and can easily be used with a different purpose. One could consider strategies like emotionally durable design. It should be pointed out that there is not an ideal blueprint for future design. Modularity, versatility and adaptiveness are to be prioritized in an uncertain and fast evolving world, meaning that diverse products, materials, and systems, with many connections are more resilient for external shocks, than monotone systems built simply for efficiency.

Preservation and Extension

Maintenance, repairs and upgrades are needed to maximize the lifetime and give a second life through reverse strategies when applicable. This means that a product needs a maintenance program to maximize its lifetime, including a buyback program and a supporting logistics system. Second hand sales or refurbish programs are also included.

Collaborations

Within a circular economy, one should work together throughout the supply chain, internally within organisations and with the public sector to increase transparency and create joint value. For the business sector this means collaboration within the supply chain and cross-sectoral, recognizing the interdependence between the different market players. These can be done by creating the incentives and providing business support.

Digital technology

Track and optimism resource use and strengthen connections between supply chain actors through digital, online platforms and technologies that provide insights. It also encompasses virtualized value creation and delivering, for example via 3D printers, and communicating with customers virtually.

Feedback mechanisms

In a circular economy, prices act as messages, and need to reflect full costs in order to be effective. The full costs of negative externalities are taken into account, and perverse subsidies are removed. Lack of transparency on externalities acts as a barrier to a transition to a circular economy.

Basics Terms of Circular Economy

Systems Thinking

Ability to understand how things influence one another within a whole. Elements are considered as ‘fitting in’ their infrastructure, environment and social context. Systems thinking usually refers to nonlinear systems: systems where through feedback and imprecise starting conditions the outcome is not necessarily proportional to the input and where evolution of the system is possible. Like living systems or meteorological systems as ocean currents, even the orbits of the planets have nonlinear characteristics.

Understanding a system is important when deciding and planning in a system. Misinterpreting the trends, flows, and human influences on, our socio-ecological systems can result in disastrous results.

The Natural Step created a set of systems conditions that can be applied when designing for a circular economy to ensure alignment with functions of the socio-ecological system.

Biomimicry

Janine Benyus, the author of “Biomimicry: Innovation Inspired by Nature”, defines her approach as “a new discipline that studies nature’s best ideas and then imitates these designs and processes to solve human problems. Studying a leaf to invent a better solar cell is an example.

• Nature as measure: uses an ecological standard to judge the sustainability of our innovations.

• Nature as mentor: is a way of viewing and valuing nature. It introduces an era based not on what we can extract from the natural world, but what we can learn from it.

Industrial ecology

Is the study of material and energy flows through industrial systems. This approach aims at creating closed loop processes in which waste is seen as input, eliminating the notion of undesirable by-products. Industrial ecology adopts a systemic point of view, designing production processes according to local ecological constraints and looking at their global impact from the outset, and attempting to shape them so they perform as close to living systems as possible.

Cradle to cradle

Created by Walter R. Stahel. He has been influential in developing the field of sustainability, by advocating ‘service-life extension of goods reuse, repair, remanufacture and upgrade technologically’s philosophies as they apply to industrialized economies. His ideas led to what is now known as the circular economy in which industry adopts the reuse and service-life extension of goods as a strategy of waste prevention, regional job creation and resource efficiency in order to decouple wealth from resource consumption, that is to dematerialize the industrial economy.

Blue economy

The official manifesto states, “using the resources available…the waste of one product becomes the input to create a new cash flow”. It is based on 21 founding principles. The Blue Economy insists on solutions being determined by their local environment and physical / ecological characteristics, putting the emphasis on gravity as the primary source of energy.

Biosphere Rules

Is a framework for implementing closed loop production processes. They derived from nature systems and translated for industrial production systems. The five principles are Materials Parsimony, Value Cycling, Power Autonomy, Sustainable Product Platforms and Function Over Form.

Towards the circular economy

In January 2012, a report was released entitled Towards the Circular Economy: Economic and business rationale for an accelerated transition. The report was the first of its kind to consider the economic and business opportunity for the transition to a restorative, circular model. This report details the potential for significant benefits across the EU. It argues that a subset of the EU manufacturing sector could realize net materials cost savings worth up to $630 billion towards 2025 by stimulating economic activity in the areas of product development, remanufacturing and refurbishment.

In January 2015 a Definitive Guide to The Circular Economy was published with the aim to raise awareness amongst the general population of the environmental problems already being caused by our “throwaway culture”. Waste Electrical and Electronic Equipment (WEEE) in particular, is contributing to excessive use of landfill sites across the globe in which society is both discarding valuable metals but also dumping toxic compounds that are polluting the surrounding land and water supplies. The third world is coping with the whole world’s WEEE. Mobile devices and computer hard drives typically contain valuable metals such as silver and copper but also hazardous chemicals like lead, mercury or cadmium. In general, consumers are unaware of the environmental significance of upgrading their mobile phones, for instance, on such a frequent basis but could do much to encourage manufacturers to start to move away from the wasteful, polluting linear economy towards are sustainable circular economy.

Circular business model

A circular economy chases opportunities to create greater value and align incentives through business models that are built on the interaction between products and services.

This means that a circular business model is not focussed on selling a product, but about thinking about value proposition, bringing forward a whole range of different business models to be used. To mention just a few examples: product-service systems, virtualized services, and collaborative consumption which encompasses the sharing economy. This comprises both the incentives and benefits offered to customers for bringing back used products and a change in revenue streams, comprising payments for a circular product or service, or payments for delivered availability, usage, or performance related to the product-based service offered.

These new ways of doing business require businesses to create an attractive business model for financiers, and financiers to change the way they perceive the risks and opportunities associated with these models.